Shield Therapeutics Edison

Feraccru out-licensed in China

Shield Therapeutics 13 January 2020 Update
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Shield Therapeutics

Feraccru out-licensed in China

China licence deal

Pharma & biotech

13 January 2020

Price

176.5p

Market cap

£207m

£0.77/US$; £0.90/€

Net cash (£m) at 30 June 2019

6.6

Shares in issue

116.4m

Free float

29%

Code

STX

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(6.1)

(2.8)

451.6

Rel (local)

(10.6)

(9.0)

398.8

52-week high/low

196p

34p

Business description

Shield Therapeutics is a commercial-stage pharmaceutical company. Its proprietary product, Feraccru, is approved by the EMA and FDA for the treatment of iron deficiency. Feraccru is marketed through partners Norgine, AOP Orphan and Ewopharma.

Next events

Out-licensing US rights to Feraccru

2020

Launches in the US and additional EU states as covered by Norgine

2020/21

Analyst

Dr Susie Jana

+44 (0)20 3077 5700

Shield Therapeutics is a research client of Edison Investment Research Limited

Shield Therapeutics has kick-started 2020 by securing an out-licensing deal in China for its primary asset, Feraccru/Accrufer. The exclusive deal with China-based Beijing Aosaikang Pharmaceutical (ASK Pharm) covers China, Hong Kong, Macau and Taiwan. ASK Pharm will complete any required clinical trials in China and file the marketing authorisation for the treatment of iron deficiency in all territories covered by the deal; we forecast China launch in 2023. Shield will receive an upfront licensing payment of $11.4m which, importantly, has extended the cash runway into 2021. The next key inflection point is a US partnering deal, which we assume will occur in the next 12 months; upfront payments from a deal will enhance Shield’s balance sheet further. We value Shield at £346.8m

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

0.64

(18.42)

(15.2)

0.0

N/A

N/A

12/18

11.88

(5.15)

(1.5)

0.0

N/A

N/A

12/19e

2.99

(7.87)

(5.2)

0.0

N/A

N/A

12/20e

11.14

(0.35)

0.7

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

China a large market in volume terms

China represents a large market in volume terms. Although at lower pricing than the US and European opportunity, the licensing deal adds to Feraccru’s overall value proposition. Under the deal terms with ASK Pharm, Shield will receive $11.4m as an upfront payment and is eligible for a further $11.4m on approval in China. Shield will receive tiered royalties of 10% or 15% of net sales of Feraccru/Accrufer (throughout the duration of the intellectual property) plus up to $40m in sales-related milestones. ASK Pharma is a speciality pharma company with a focus on gastrointestinal and oncology treatment, Feraccru/Accrufer fits into its therapeutic focus well and will benefit from the 1,000-strong commercial team in China on potential launch (forecast for 2023).

Financials: Cash runway extended into 2021

Shield reported an H119 cash position of £6.6m, and we estimate 2019 cash burn of £5.6m. The upfront payment of $11.4m from ASK Pharma extends the cash runway into 2021, and we expect a US partnering deal (2020) and associated upfront licensing payment to strengthen the balance sheet, further reducing the requirement for a capital increase. With ongoing growth in Europe and a US launch on the horizon, we forecast that sustainable profitability is achievable from 2022, with gross margins nearing c 50–60% in the long term.

Valuation: £346.8m or 296p/share

Our revised valuation of Shield at £346.8m or 296p/share vs £273m or 233p/share (derived from an rNPV model) reflects the inclusion of the China licensing deal. We have also updated for FX and rolling forward our model. Our NPV calculation is based on Feraccru achieving peak sales of €133m in Europe, $420m in the US and $126m in China, utilises a 10% discount rate and risk-adjusts the China opportunity accordingly (75% probability of success).

China one of two licensing deals delivered in 2020

Higher prevalence of iron deficiency anaemia in China

In the US, the FDA has granted Feraccru/Accrufer the broadest label for the treatment of iron deficiency with or without anaemia. We discuss the prevalence of iron deficiency anaemia (IDA) given the wide availability of data. It is the most common cause of anaemia globally (c 50%) – the Global Burden of Disease Study 2015 estimated that IDA was prevalent in c 1.5 billion people globally. The prevalence of iron deficiency itself is higher than IDA. IDA is the most common nutritional disorder globally, yet it remains underdiagnosed and under treated across all countries. Prevalence of IDA varies by country, but it is estimated that c 3% of the population across Europe and the US is diagnosed with IDA. According to 2002 data from the China National Nutrition and Health Survey, anaemia prevalence in China was 20.1%. Anaemia prevalence rates are higher in women of child-bearing age and the elderly compared to the national average. Nutrition plays a large part in the high prevalence rates in China and the nutritional disease control target proposed by the development of the Chinese Food and Nutrition Program (2014–30) aims at an anaemia prevalence rate of less than 10% for the whole population.

China decent deal dynamics with ASK Pharm

The ASK Pharm licensing terms are comparable to the Norgine partnership deal in Europe, where Shield received a non-refundable upfront licence payment of £11m and is eligible for up to €51.4m in milestone payments. Under the previously agreed European deal, Shield will receive a tiered royalty rate of 25–40% from sales of Feraccru (brand name Europe), and in China the royalty rate has been announced as 10–15%. In Europe, Shield is responsible for the manufacture and supply of Feraccru, as well as the initiation and completion of a Phase III paediatric study. Shield will receive reimbursement for manufacture and supply.Under the terms of the China deal, ASK Pharm is responsible for all clinical and regulatory costs, as well as manufacturing and distribution costs. Given the low number of Chinese patients in the Phase III clinical trials held to date (conducted in the US and EU), we believe the China regulatory body for drug approval, the National Medical Products Administration (NMPA) will require a single confirmatory Phase III trial in Chinese patients as part of the NDA submission. In recent years, the NMPA approval times on drugs, particularly where there is an unmet need, has been swifter and we therefore forecast that launch in 2023 is feasible, assuming a one- to two-year trial duration. We forecast peak sales in China of $126m in 2031 However, given the multiple swing factors in this high-volume market, we have exercised caution and use lower pricing ($25 per month vs €55 per month in Europe) and penetration rates (peak penetration 5% of eligible patients vs 12.5% in Europe) than our EU assumptions. Our China sales forecasts could prove conservative.

US market largest value driver

The US is the largest contributor to our valuation of Feraccru/Accrufer, given higher potential pricing dynamics and a broad prescribing label, as the FDA approved it for the treatment of iron deficiency with or without anaemia. We anticipate the announcement of a commercial partner in 2020 and launch in the US later in the year. Upfront payments from a US deal would bolster Shield’s balance sheet further, potentially reducing reliance on a capital raise in the near term. We forecast that sustainable profitability is achievable from 2022, with gross margins nearing c 50–60% in the long term.

Valuation

Our valuation of Shield Therapeutics, at £346.8m or 296p/share vs £273m or 233p/share (Exhibit 1) is based on a risk-adjusted NPV model of Feraccru for the treatment of IDA in Europe (as covered by Norgine) and for CKD/IBD-related ID in the US market. We forecast that Feraccru will achieve peak sales in Europe of €133m after 10 years in 2028 (and grow 2.5% pa until 2035). In the US, we believe peak sales of $420m will be achieved in 2030 (and grow 2.5% pa until 2035). We include China peak sales of $126m (2031) for the first time, which are risk-adjusted at 75% to reflect the requirement for Phase III data in China patients and regulatory risk. In addition, the valuation has benefited from rolling forward the DCF and updating FX rates.

Exhibit 1: Financial summary

Product

Market

Launch/peak

Peak sales

NPV

Probability

rNPV

rNPV/
share

Feraccru

EU5

2019

2028

€133m

£110.2m

100%

£110.2m

94.1p

US

2020

2030

$420m

£177.0m

100%

£177.0m

151.0p

China

2023

2031

$126m

£70.7m

75%

£53.0m

45.2p

Net cash at 30 June 2019

 

 

 

 

£6.6m

100%

£6.6m

5.6p

Valuation

 

 

 

 

£364.5m

 

£346.8m

295.9p

Source: Edison Investment Research

Exhibit 2: Financial summary

December

£000s

 

2017

2018

2019e

2020e

2021e

PEOFIT & LOSS

Revenue

 

 

637

11,881

2,993

11,139

8,501

Cost of sales

 

 

(155)

(311)

(536)

(1,729)

(4,106)

Gross profit

 

 

482

11,570

2,458

9,410

4,395

Gross margin %

 

 

76%

97%

82%

84%

52%

SG&A (expenses)

 

 

(16,722)

(12,438)

(7,324)

(6,758)

(6,107)

R&D costs

 

 

(4,711)

(4,300)

(3,000)

(3,000)

(3,000)

Other income/(expense)

 

 

0

0

0

0

0

EBITDA

 

 

(18,514)

(2,814)

(5,542)

1,910

(2,605)

Depreciation and amortisation

 

 

(2,437)

(2,354)

(2,324)

(2,258)

(2,107)

Reported Operating Income

 

 

(20,951)

(5,168)

(7,867)

(348)

(4,712)

Exceptionals and adjustments

 

 

(2,571)

0

0

0

0

Adjusted Operating Income

 

 

(18,380)

(5,168)

(7,867)

(348)

(4,712)

Finance income/(expense)

 

 

(43)

15

0

0

0

Reported PBT

 

 

(20,994)

(5,153)

(7,867)

(348)

(4,712)

Profit Before Tax (norm)

 

 

(18,423)

(5,153)

(7,867)

(348)

(4,712)

Income tax expense

 

 

1,406

3,359

1,800

1,200

600

Reported net income

 

 

(19,588)

(1,794)

(6,067)

852

(4,112)

Average Number of Shares Outstanding (m)

 

112.4

116.4

116.4

116.4

116.4

Year-end number of shares, m

 

 

112.4

116.4

116.4

116.4

116.4

Basic EPS (p)

 

 

(17.43)

(2.00)

(5.21)

0.73

(3.53)

EPS - normalised (p)

 

 

(15.2)

(1.5)

(5.2)

0.7

(3.5)

Dividend per share (p)

 

 

0.00

0.00

0.00

0.00

0.00

BALANCE SHEET

 

 

 

 

 

 

 

Property, plant and equipment

 

 

13

8

6

4

3

Goodwill

 

 

0

0

0

0

0

Intangible assets

 

 

29,961

30,957

30,085

28,079

26,223

Other non-current assets

 

 

0

0

0

0

0

Total non-current assets

 

 

29,974

30,965

30,091

28,083

26,226

Cash and equivalents

 

 

13,299

9,776

4,148

7,755

2,829

Inventories

 

 

125

109

589

1,900

2,256

Trade and other receivables

 

 

1,572

1,031

1,883

6,882

12,605

Other current assets

 

 

0

1,500

1,500

1,500

1,500

Total current assets

 

 

14,996

12,416

8,120

18,038

19,190

Non-current loans and borrowings

 

 

0

0

0

0

0

Other non-current liabilities

 

 

0

0

0

0

0

Total non-current liabilities

 

 

0

0

0

0

0

Trade and other payables

 

 

3,501

2,548

2,944

9,502

12,409

Current loans and borrowings

 

 

0

0

0

0

0

Other current liabilities

 

 

262

403

403

403

403

Total current liabilities

 

 

3,763

2,951

3,347

9,905

12,812

Equity attributable to company

 

 

41,207

40,430

34,863

36,215

32,603

CASH FLOW STATEMENT

 

 

 

 

 

 

 

Reported net income

 

 

(19,588)

(1,794)

(6,067)

852

(4,112)

Depreciation and amortisation

 

 

2,437

2,354

2,324

2,258

2,107

Share based payments

 

 

560

1,013

500

500

500

Other adjustments

 

 

39

4

0

0

0

Movements in working capital

 

 

(186)

(255)

(936)

247

(3,171)

Interest paid/received

 

 

0

0

0

0

0

Income taxes paid/received

 

 

587

(1,500)

0

0

0

Cash from operations (CFO)

 

 

(16,151)

(178)

(4,178)

3,857

(4,676)

Capex

 

 

(3,408)

(3,345)

(1,450)

(250)

(250)

Acquisitions & disposals net

 

 

0

0

0

0

0

Other investing activities

 

 

0

0

0

0

0

Cash used in investing activities (CFIA)

 

 

(3,408)

(3,345)

(1,450)

(250)

(250)

Net proceeds from issue of shares

 

 

11,880

0

0

0

0

Movements in debt

 

 

0

0

0

0

0

Other financing activities

 

 

0

0

0

0

0

Cash from financing activities (CFF)

 

 

11,880

0

0

0

0

Cash and equivalents at beginning of period

 

 

20,978

13,299

9,776

4,148

7,755

Increase/(decrease) in cash and equivalents

 

 

(7,679)

(3,523)

(5,628)

3,607

(4,926)

Cash and equivalents at end of period

 

 

13,299

9,776

4,148

7,755

2,829

Net (debt)/cash

 

 

13,299

9,776

4,148

7,755

2,829

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Shield Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Shield Therapeutics. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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General disclaimer and copyright

This report has been commissioned by Shield Therapeutics and prepared and issued by Edison, in consideration of a fee payable by Shield Therapeutics. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

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Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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